Last Updated on: 24th June 2025, 05:59 pm

The Status of Assets During Separation

Assets that are acquired during a marriage are often deemed to be marital property. The same is true of assets that appreciate in value during the course of a marriage.

However, what happens to items that were acquired during a separation? The status of those assets may depend on who purchased them and whether or not marital money was used to buy it.

Money in a Joint Bank Account Is Still a Marital Asset During Separation

Any asset that would have been considered a marital asset would retain that status until a divorce is finalized. Therefore, if an item was purchased with money from a joint bank account, it would most likely be considered a marital asset.

If money from an joint account was used to restore or improve a separate asset, it could become a marital asset because of a concept called commingling.

Understanding Commingling of Assets

When funds are commingled, it becomes difficult to determine whether an asset is truly separate anymore, which means it is likely to be labeled as a marital asset. If you deposit a cash inheritance into a joint bank account, it may no longer be considered your separate property.

Was There an Agreement Regarding Items Purchased During the Separation?

It is possible for a couple to come up with an agreement regarding the status of any property that they own or acquire during the separation period. If an agreement is already in place, it will dictate whether something purchased during a separation is to be labeled as marital property or separate property.

Prenuptial and Postnuptial Agreements

A prenuptial agreement or postnuptial agreement may also act to change separate property to marital property or vice versa. However, such an agreement is only valid if both sides agree to terms with no undue influence or pressure placed on either party.

Those who believe that they were the victim of duress prior to signing any type of agreement may want to voice those concerns to an attorney.

Certain Items Are Almost Always Separate Property

If an individual received an inheritance from a parent or grandparent, that money or property will be labeled as separate property. Inheritances or gifts from someone outside of the marriage are considered separate property.

If an individual is gifted a home, car or proceeds from an IRA or life insurance policy from a family member, it may also be labeled as separate property.

Protecting Separate Property With Trusts

Those who have any questions as to whether a spouse would be entitled to a portion of an inheritance or any other assets passed down from family members, it may be a good idea to consult with an attorney.

It may be possible to put such assets in a trust that names the individual who received the assets as the trustee to ensure that he or she retains full control of those assets.

It May Be Best to Acquire Items With Your Own Money

As a best practice during a separation, you may want to create your own bank account and use it exclusively to acquire items before the divorce. The date of separation is crucial to asset division as income earned by either spouse after that date is separate property.

You may also want to use a personal credit card to buy items if you don’t want to or cannot get your own bank account for any reason.

Maintaining Clear Financial Boundaries

Furthermore, make sure that the money that goes into the account comes from a paycheck or gifts made directly to you. This makes it less likely that your spouse can claim commingling of funds or otherwise claim a portion of property that doesn’t belong to him or her.

The IRS considers you married for filing purposes until you get a final decree of divorce or separate maintenance. This can affect how property transfers are treated for tax purposes.

Understanding Property Classification in Divorce

Determining whether property is marital or separate in nature can play a large role in how much you are actually entitled to in a divorce settlement. Without a pre-nuptial agreement, it will be up to your attorney to identify and prove any separate property claims.

It can also create complications when it comes to actually creating that settlement if there are doubt about who actually owns what.

Timing Is Critical

Therefore, it may be a good idea to create an agreement before separating or to do so as soon as possible if a separation seems likely to evolve into a full divorce. Property transfers included in a divorce decree are subject to income taxes or gift taxes unless they meet specific requirements.

The following factors typically determine property classification:

• When the property was acquired (before, during, or after marriage)
• Source of funds used to purchase the property
• Whether marital funds were used to improve separate property
• Existence of any written agreements between spouses
• How the property was titled and maintained

State Law Variations

Family courts have been reluctant to take tax effects into account except when it is clear that the party will suffer immediate tax consequences from an expected sale of the property or from the transfer itself.

Remember that state laws differ significantly regarding property division, with some following community property rules and others using equitable distribution principles.